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Henry Schein Hurt by Higher Costs, Lacks Growth Drivers


On Jan 10, we issued an updated research report on Melville, NY-based Henry Schein, Inc. HSIC, a leading distributor of health care products and services across the globe. The company currently carries a Zacks Rank #4 (Sell).

Over the past six months, Henry Schein has consistently traded below the Zacks categorized broader Medical – Dental Supplies industry. Unfavorable foreign currency exchange had an adverse impact on Henry Schein’s overall performance in the past few quarters. Also, escalating costs and expenses continue to be a drag on the company’s margins and put pressure on the bottom line. A tough competitive landscape and pricing pressure also weigh on Henry Schein’s stock.

In the absence of any growth catalyst, we expect the trend to continue in the days ahead. This apart, the recent emergence of group purchasing organizations (GPOs) and the consequent pricing pressure that they are exerting on single healthcare providers, like Henry Schein, might hamper the latter's business efficacy.

However, Henry Schein might gain from several trends in its end markets, one of them being customer demographics. According to a recent estimation, between 2015 and 2025, the population aged 45 and older will likely grow approximately 12%. This demographic trend is expected to boost the utilization of dental and medical products distributed by the company.

Key Picks

Better-ranked medical stocks are Penumbra, Inc. PEN, Neogen Corporation NEOG and Conatus Pharmaceuticals Inc. CNAT. Penumbra sports a Zacks Rank #1 (Strong Buy) while Neogen and Conatus carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Penumbra gained 32.8% over the last one year compared to the S&P 500’s 20.4%. The company has an impressive four-quarter average earnings surprise of over 100%.

Neogen gained 27% in the past one year, way better than the S&P 500. The stock has an impressive long-term earnings growth of 16.7% for the next five years compared to the industry average of 15.2%.

Conatus Pharmaceuticals rallied 200.6%, much better than the S&P 500. It has a trailing four-quarter average positive earnings surprise of 12.5%.

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